Electricity markets in Europe: How to recover the production costs?

Summary Current difficulties of electricity markets in Europe have been highlighted in the literature. The market clearing price does not guarantee the economic sustainability of several technologies, which, nevertheless, are needed for the secure operation of the power system. The solutions to cope with this situation do theoretically work well for optimal systems, its application for real‐life nonoptimal systems being doubtful. The growing deployment rate of technologies with “near zero” marginal cost and payments outside the market are leading to an intermittent generation excess capacity and the reduction of the market clearing price. Other difficulties should be taken into account in today's markets. The issue is if the remuneration of the power plants should be based solely on the spot market. Through the concepts of optimal power system and nonoptimal power system, it is shown that the missing money problem for some technologies may coincide with the over profit problem for other technologies. As a contribution to discuss further this issue, a solution is proposed based on a short‐term energy market complemented with an outside market long‐term capacity payment mechanism, grounded on a Power Purchase Agreement set between a central planning agency and the power plant owner. The proposed solution complies with security of supply, environmental sustainability, and producers' economic viability at minimum cost for the consumers.